Lagos Chamber of Commerce and Industry, LCCI, has advocated the need to de-risk the real sector to encourage investment from insurance firms, pension managers and foreign investors.
LCCI Director-General of the Lagos Chamber of Commerce and Industry, LCCI, Dr. Muda Yusuf stated this at the 5th annual conference of the National Association of Insurance and Pension Correspondents, NAIPCO, in Lagos last week.
Yusuf, who spoke on the theme: “Promoting Bankable Investments Portfolio for Insurance and Pension Sectors” noted that many fund managers are ignoring the real sector due to elevated risk despite a number of attractive opportunities.
Yusuf said: “Ideally, the low yields on government securities ought to have spurred fund managers to explore viable investment opportunities in the real sector.
“But many fund managers are ignoring the real sector due to elevated risk despite quite a number of attractive opportunities.
“Investor’s participation has been weak in the real economy in recent years. About five percent of foreign capital flows to Nigeria went into the real sector between January and June 2020, indicating poor investment sentiment towards the sector.
“The real sector needs to be totally de-risked to be able to attract the adequate quantum of private capital (PFAs, insurance firms, foreign investors).
“Deposit Money Banks (DMBs), just like fund managers, are very cautious in channelling funds to the real economy, particularly this time when risks are elevated in the macroeconomic and business environment.
“This validates the reason for high borrowing costs on bank facilities to the real economy.
“Just a few high-profile corporates enjoy lower interest rate (prime rate), while small and medium outfits suffer tight access to funds.”
According to Yusuf, the major factors dampening the investment prospects of the real sector include vulnerability to external shocks, foreign exchange volatility, infrastructure deficit, tough operating environment, regulatory challenges, policy uncertainty, low purchasing power and weak economic growth.
The LCCI DG stated that de-risking the real sector is needed to boost investor confidence and fund managers’ participation in the real sector, attract more private sector investment into the sector, generate more employment opportunities, foster industrialisation and economic diversification agenda, as well as unlock more investment opportunities in the real sector.
On how to de-risk the real sector, Yusuf noted that there must be policy and institutional reforms, better regulatory environment, effective synchronisation of fiscal and monetary policies.
He added ease of doing business reforms, structural reforms towards easing high production costs, bridging the huge infrastructural deficit (estimated at about $3 trillion), providing credit guarantees, insurance cover for businesses, especially manufacturing SMEs, having a clear policy direction and addressing security challenges.